STEREO is a novel algorithm that discovers cis-regulatory RNA interactions by assembling complete and potentially overlapping same-strand RNA transcripts from tiling expression data. STEREO first identifies coherent segments of transcription and then discovers individual transcripts that are consistent with the observed segments given intensity and shape constraints. We used STEREO to identify 1446 regions of overlapping transcription in two strains of yeast, including transcripts that comprise a new form of molecular toggle switch that controls gene variegation.